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Cournot and Bertrand Competition in a Model of Spatial Price Discrimination with Differentiated Products

Author

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  • Sun Chia-Hung

    (Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei 100, Taiwan)

Abstract

This study investigates spatial price discrimination with two types of market competition – price competition and quantity competition – and two kinds of cross-relations between goods – substitutes and complements – with endogenous location choices in a barbell model. The results herein present that the maximum differentiation (end point agglomeration) is the unique location equilibrium with substitutes (complements), irrespective of what type of competition. We demonstrate that if the unit transportation rate is sufficiently high, then consumer surplus, profits, and social welfare are higher under price competition than under quantity competition for both substitutes and complements. This means that introducing a spatial barrier to competition generated through transportation costs may solve the problem of inconsistency from the conflict interests between consumers, firms, and a social planner.

Suggested Citation

  • Sun Chia-Hung, 2014. "Cournot and Bertrand Competition in a Model of Spatial Price Discrimination with Differentiated Products," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 251-272, January.
    • Handle: RePEc:bpj:bejtec:v:14:y:2014:i:1:p:22:n:4
    DOI: 10.1515/bejte-2013-0001
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    References listed on IDEAS

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    1. Raquel Arévalo-Tomé & José María Chamorro-Rivas, 2006. "Location as an instrument for social welfare improvement in a spatial model of cournot competition," Investigaciones Economicas, Fundación SEPI, vol. 30(1), pages 117-136, January.
    2. Stefano Colombo, 2011. "Taxation and predatory prices in a spatial model," Papers in Regional Science, Wiley Blackwell, vol. 90(3), pages 603-612, August.
    3. Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
    4. John Gross & William L. Holahan, 2003. "Credible Collusion in Spatially Separated Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 299-312, February.
    5. Pal, Debashis, 1998. "Does Cournot competition yield spatial agglomeration?," Economics Letters, Elsevier, vol. 60(1), pages 49-53, July.
    6. Chia-Hung Sun, 2009. "A note on Arévalo-Tomé and Chamorro-Rivas: Location as an instrument for social welfare improvement in a spatial model of Cournot competition," Investigaciones Economicas, Fundación SEPI, vol. 33(1), pages 131-141, January.
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    More about this item

    Keywords

    spatial discrimination; Cournot competition; Bertrand competition; substitutes; complements;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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